Summary - Asia-Pacific Economic Cooperation · risk assessments by nuclear power operators....

The 4th Strategic Energy Plan of Japan

Summary

April 2014

Agenda Item 5

Introduction

As for Japan, which depends on most of fossil fuel from abroad, energy security is always a significant issue.

This plan gives a direction of Japan’s energy policies for medium/long-term

(about next 20 years) . It declares a period from now to 2018-2020 should be a special stage to reform a variety of energy systems.

GOJ will share distress of the affected people caused by the accident at TEPCO’s

Fukushima Daiichi Nuclear Power Plant, and achieve the restoration and reconstruction of Fukushima. Japan’s energy strategies, which were drafted before the Great East Japan Earthquake, should be reviewed from scratch, and GOJ should make efforts to decrease dependency on nuclear power as much as possible.

It is a starting point to reestablish Japan’s energy policies.

1

2. Problems exposed just before and after 3.11

Ⅰ. Problems on Japan’s Energy Supply/Demand Structure

1. Basic Problems

Japan’s energy supply would be easily affected by external factors due to its high dependency on oversea fossil fuel.

Population decline and innovation in energy conservation technology have caused structural changes in Japan’s medium/long-term energy demand.

Increased energy demand in emerging countries has led rapid increase in natural resources’ prices and global greenhouse gas emission.

Concerns regarding safety of nuclear power plants and weak public confidence toward GOJ and utilities.

Due to an increase of fossil fuel imports, Japan faces further dependency on the Middle-East, a rise in electricity prices, a rapid increase of greenhouse gas emissions, and an outflow of national wealth.

Exposed structural defects, such as difference in electricity frequency between East and West in Japan, a lack of emergency system to deliver oil products

New trend for energy saving by household and industries. New trend in global energy supply structure such as energy independency of

North America due to shale gas, emerging regional differences in energy prices. 2

1. Principles of Energy Policy and Viewpoints for Reformation

Ⅱ. Principles of Energy Policy and Viewpoints for Reform

Stable Supply (Energy Security)

Cost Reduction (Economic Efficiency)

Environment

Safety

3

+

Global Viewpoint -Developing energy policies with international movement appropriately

-Internationalizing energy industries by facilitating business overseas.

Economic Growth -Contribution to reinforce Japan’s locational competitiveness.

-Activating Japan’s energy market through energy system reform.

(1) Confirmation of basic viewpoint of energy policies (3E + S)

(2) Building multilayered and diversified flexible energy demand-supply structure

Establishing resilient, realistic and multi-layered energy supply structure, where each energy source can exert its advantage and complement others’ drawbacks.

Creating a flexible and efficient supply/demand structure where various players can participate and various alternatives are prepared by system reforms.

Improving self-sufficiency ratio by developing and introducing domestic resources to minimize influence from overseas’ situation.

機密性○

(1) Renewables (solar, wind, geothermal, hydroelectricity, biomass) Promising, multi-characteristic, important, low carbon and domestic energy

sources. Accelerating their introduction as far as possible for three years, and then keep

expanding renewables.

(2) Nuclear Power Important base-load power source as a low carbon and quasi-domestic energy

source, contributing to stability of energy supply-demand structure, on the major premise of ensuring of its safety, because of the perspectives; 1) superiority in stability of energy supply and efficiency, 2) low and stable operational cost and 3) free from GHG emissions during operation.

Dependency on nuclear power generation will be lowered to the extent possible by energy saving and introducing renewable energy as well as improving the efficiency of thermal power generation, etc.

Under this policy, we will carefully examine a volume of electricity to be secured by nuclear power generation, taking Japan’s energy constraints into consideration from the viewpoint of stable energy supply, cost reduction, global warming and maintaining nuclear technologies and human resources.

2. Evaluation of each energy source Ⅱ. Principles of Energy Policy and Viewpoints for Reform

4

(3) Coal Revaluating as an important base-load power source in terms of stability and cost

effectiveness, which will be utilized while reducing environmental load (utilization of efficient thermal power generation technology, etc.) .

(5) Oil Important energy source as both an energy resource and a raw material, especially

for the transportation and civilian sectors, as well as a peaking power source.

(4) Natural Gas Important energy source as a main intermediate power source, expanding its roles

in a variety of fields.

(6) LP Gas A clean and distributed energy source that can not only be utilized in everyday life

but also in emergency situations.

5

Energy Mix Energy mix will be shown soon after this plan, taking into consideration factors

including restart of nuclear power plants and expansion of renewable energies, and so on.

機密性○

6

Ⅲ. Policies on energy supply/demand structures that should be applied secularly, comprehensively according to the plan

1. Promoting comprehensive policies for securing of resources Promoting multilayered “resource diplomacy” with natural resource exporting countries. Facilitating diversification of supply sources and upstream development through risk

money supply. Promoting new styles of joint procurement such as comprehensive business partnership. Establishing a stable and flexible LNG supply-demand structure with a long-term strategy

that Japan would be a hub of a coming Asia LNG market. Developing domestic seabed mineral resources such as methane hydrate and rare metals. Promotion of recycling system for rare metals and reinforcement of reserve system.

2. Realization of an advanced energy–saving society

Formulating energy efficiency indexes in order to facilitate energy-saving on each sector. <residential & commercial sector> Introduction of complementary energy efficiency standards for buildings/houses. <transport sector> Promoting ITS which enables automatic driving system to improve fuel efficiency. <industry sector> Encouraging investment to replace more efficient facilities.

(1) Enhancing energy efficiency in each sector

(2) Realization of smart energy consumption through various options to end users Establishing a method of “Demand Response” through smart meters in all homes and all

businesses.

機密性○

7

3. Accelerating Introduction of Renewable Energy: Toward Grid Parity in the Mid/Long Term

Accelerating introduction as far as possible for three years from 2013, followed by continuous active promotion.

Establishing “Ministerial Meeting on Renewables” for policy coordination. Pursuing a higher level of introducing renewables than the levels* which were indicated

based on the former Strategic Energy Plans, and GOJ takes them into account in a next energy mix.

Operating FIT stably and appropriately, promoting regulatory reforms, R&D etc. * “the Foresights of Long-Term Energy Supply and Demand(Recalculated)” (Aug. 2008, METI) - The ratio of renewables in total watt-hour in 2020: 13.5% (141.4 billion kWh) “the Shape of Energy Supply and Demand in 2030” (Jun. 2010, the document for Advisory Committee on Energy

and Natural Resources) - The ratio of renewables in total watt-hour in 2030: approximately 20% (214 billion kWh)

(1) Strengthening the measures for expansion of wind and geothermal power <Onshore Wind Power> Shortening periods for environmental assessment, establishing regional/inter-regional

grid for renewables, installing large storage cells, rationalizing regulations, and so on. <Offshore Wind Power> Promoting pilot projects for floating wind turbines technology in Fukushima and

Nagasaki prefecture, and making the technology commercialized by 2018. <Geothermal> Reducing investment risk, shortening a period for environmental assessment, and

promoting understanding of local people.


機密性○

8

<Woody Biomass> Promoting the power generation and thermal usage of woody biomass, through forest

/timber policies and the “Act for Promotion of Power Generation of Renewable Energy Electricity to take Harmony with Sound Development of Agriculture and Forest”.

(2) Promoting distributed energy systems with renewables

<Medium/Small size Hydro Power> Simplification of procedure on water rights by the amendment of the “River Act”.

<Solar Power> Continuing supports for introduction for self-consumption in regions.

<Thermal Energy from Renewables> Promoting introduction of thermal-supply facilities and pilot projects for multi-heat use.

(3) FIT

Examination of the system from various views; facilitating the maximum use of renewables as well as reducing cost burden, referring situations of other countries which have faced challenges of cost burden and strengthening grid systems.

(4) Fukushima as a new hub of renewable energies’ industries

Constructing an AIST’s new research center for renewables.


機密性○

４. Re-establishment of nuclear policy

9

(1) Efforts towards restoration and reconstruction of Fukushima -Efforts towards restoration and reconstruction of Fukushima is a starting point to rebuild Japanese energy policies.

-GOJ’s playing more proactive roles in the decommissioning of Fukushima Daiichi NPPs and the countermeasures for the contaminated water issue (CWI).

-GOJ’s playing more proactive roles in proceeding compensation, decontamination and operations of intermediate storage facilities.

-Conducting necessary studies for the establishment of R&D center for decommissioning and of industrial cluster for the fabrication/maintenance around the Fukushima Daiichi site.

(2) Untiring pursuit of safety and establishment of stable environment for nuclear operations -Shedding the “safety myth” and pursuing the world’s highest level of safety for operations. - In case that the Nuclear Regulation Authority confirms the conformity of nuclear power plants with the regulatory requirements which are of the most stringent level in the world, GOJ will follow the NRA’s judgment and proceed with the restart. In this case, the GOJ will make best efforts with operators to obtain understanding of relevant parties including host municipalities.

-Establishing an appropriate risk management system and implementing objective/quantitative risk assessments by nuclear power operators.

-Examining an appropriate business environment, where nuclear power operators can realize smooth decommissioning, prompt safety measures, stable supply of electricity, etc. under the liberalized electricity markets.

-Discussing a revision of the domestic nuclear damage compensation system comprehensively. -Accelerating the necessary work towards a conclusion of CSC. -Supporting municipalities hosting nuclear facility sites to enhance their evacuation plans, and reinforcement of measures for the nuclear emergency response.


機密性○

(3) Steady approach to solve issues of nuclear power

(a) Drastic reinforcement of measures for achieving solutions and promotion concerning

spent fuel management -GOJ’s playing more active roles in finding proper solutions of geological disposal of high-

level radioactive waste (HLW), securing reversibility and retrievability in HLW management

for future generation.

-GOJ’s promoting study and research on alternative disposal options including direct

disposal method.

-GOJ’s taking more initiative in explaining selection of candidate disposal sites from a

scientific viewpoint and constructs a mechanism to build consensus in regions.

-Facilitating construction and utilization of new intermediate storage facilities and dry

storage facilities.

-R&D for reduction and mitigation of volume and harmfulness of radioactive waste.


10

機密性○

(b)Promotion of nuclear fuel cycle policy -Strongly keeping a stable nuclear fuel cycle policy with the understanding and cooperation of located municipalities and international community, and holding flexibility to promote nuclear fuel cycle policy for mid- to long-term.

-Continuing committing to the principle of not possessing reserves of plutonium, of which use is undetermined on the premise of peaceful use, and conducting an appropriate management and utilization of plutonium considering an appropriate plutonium balance.

-Promoting R&D of fast reactors, etc., through international cooperation with US and France etc.

-Reforming any aspects of Monju research thoroughly and placing Monju as an international research center for technological development, such as reducing the amount and toxic level of radioactive waste and technologies related to nuclear nonproliferation.

(4) Establishment of trust relationship with people, municipalities hosting nuclear facility sites and international community -Carrying out attentive public hearings and public relations based on facts and scientific evidence.

-Promoting measures supporting municipalities hosting NPPs in accordance with each regional situation.

-Providing nuclear technology with enhanced safety based on lessons from the accident, and strengthening support for human resource and institutional development for countries newly introducing NPPs.


11

機密性○

6. Promotion of reforms in supply structure to remove market barriers

5. Environmental arrangement for the efficient/stable use of fuel fossils

12

(1) Promoting the effective use of high efficiency coal/LNG-fired power generation Shortening a period for environmental assessment. Developing next-generation high efficiency coal-fired power generation technologies (e.g.,

IGCC) and carbon capture and storage (CCS) technology. Promoting exports of Japan’s advanced coal/LNG-fired power generation.

(2) Restructuring of the Market and Business Foundations for Petroleum and LP Gas Industries Supporting business restructuring for a oil refining industry, SS and LP gas operators.

(1) Electricity System Reform Expanding cross-regional coordination of transmission operators, introduce full retail

competition and legally unbundle transmission and distribution sectors. Introducing a mechanism for Transmission System Operators to purchase load following

power, an obligation to retailors for securing power supply and so on, to secure stable supply to end users under full competition.

(2) Promoting Reforms in Gas Systems and Heat Supply Systems Introducing a full competition in gas supply market, and reviewing a system to use gas

supply infrastructure for new comers. Overhauling a heat supply business to further promote effective use of heat.


機密性○

7. Enhancing resilience of domestic energy supply network

13

Reinforcing oil and LP gas storage systems and promoting cooperation with oil-producing countries and neighboring countries.

Enhancing disaster response capability of refineries, service stations, as well as ensuring stable supply of petroleum products in everyday life.

Establishing an emergency response system to coordinate among public agencies. Encouraging critical consumers(hospitals, etc.) to store petroleum products for emergency. Enhancing resilience of the electricity/gas supply system.

8. Future of a secondary energy supply structure

(1) Promoting co-generation and introduction of storage batteries Examination of a new dealing to introduce electricity from co-generation to the market.

(2) Facilitating new technologies, which can use new energy sources, to introduce competition among energy sources in such new energy vehicles Aiming that a sale of new next-generation automobiles will reach at 50% through 70% in

total new vehicles sale by 2030. (3) Realization of the “Hydrogen Society” Promoting residential fuel cells “Ene-farm” to 5.3 million in 2030. Building 100 hydrogen refueling stations in 2015. Commercialization of advanced technologies such as Hydrogen Power Generation. Continuing R&D efforts for the technologies such as hydrogen production ,transport and

storage. Making a roadmap to realize the “Hydrogen Society” in Spring 2014.


機密性○

9. Energy leading Growth Strategy : creation of new energy enterprises etc,

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(1) Big turnaround of industrial structure in energy sector

Facilitating new entries by new servicers to energy markets through electricity/gas system reforms.

(2) Fostering new energy enterprises

Mitigating regulations for creation of comprehensive energy enterprises.

Promoting smart communities which would give a new energy supply service with other regional public services.

(3) Creation of new energy markets and development of international energy markets

Facilitating of Japan’s advanced technologies such as storage batteries and fuel cells.

Promoting exports of energy related infrastructures such as efficient thermal power plants, nuclear power plants and technologies for renewables and energy conservation.

10. Strengthening comprehensive international energy cooperation

Contributing to multilateral energy cooperation frameworks such as the IEA and IAEA.

Utilizing EAS as a framework to secure energy security with ERIA.

Enhancing bilateral energy cooperation, especially Japan-US energy cooperation should be more comprehensive.


機密性○ Ⅳ. Promoting strategic R&D

15

Formulating a roadmap for technological development by next summer.

Accelerating innovative technological development such as

-lower-cost storage batteries and fuel cells

-higher efficiency coal/LNG-fired power generation

-technologies to reduce nuclear fuel waste and so

Ⅴ. Communication with all levels of society on energy issues

Sharing energy issues with all levels of Japan’s society more.

Expansion of inter-active communication with various people.

機密性○ Constitution of Electric Power Supply Corresponding to Demand

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Base-load Power Source: Low production cost that can be operated stably day and night regardless of the time Intermediate Power Source: Production cost is next lowest to base-load source. Generation can be adjusted in accordance with electricity demand Peaking Power Source: Easy to control generation in accordance with electricity demand while production cost is high

8.5% 8.4%

28.6%

1.7%

25.0%

27.6%

29.3%

42.5%

7.5%

18.3%

1.1% 1.6%

Oil

New energies

Nuclear

Coal

LNG

Hydro

2012FY 2010FY 0 4 8 12 16 20 24

Solar, Wind

Oil Pumped-storage hydroelectricity etc.

LNG LPG etc.

Nuclear Coal Hydroelectricity Geothermal

Peaking Power Source

Low Cost constant

generation

Middle Cost able to control

generation

High Cost easy to control

generation

kWh

Characteristics of power source

hour

Intermediate Power Source

Base-Load Power Source

(Reference) Annual kWh

Ministry of Economy, Trade and Industry Agency for Natural Resources and Energy

April, 2014

Agency for Natural Resources and Energy Ministry of Economy, Trade and Industry (METI) Japan


Table of Contents

1. Energy Policy

2. LNG

3. Methane Hydrate

4. Nuclear

5. Electricity System Reform

6. Renewable Energies

7. Energy Efficiency

8. New Technologies

1


Current Energy Mix in Japan

Oil

Renewable etc.

LNG

Coal

Nuclear

LNG increase compensates for the decline of nuclear power.

25%

48%

Coal

2


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%19

5319

5419

5519

5619

5719

5819

5919

6019

6119

6219

6319

6419

6519

6619

6719

6819

6919

7019

7119

7219

7319

7419

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

12

Japan’s Primary Energy Source

45%

4%*

3%

1%

25%

23% ７５％

Japan’s Energy Supply Structure

Coal

Oil

Natural gas

Nuclear power Hydro

Coal

Renewables etc.

Source: Prepared based on “Comprehensive Energy Statistics (Preliminary Report for 2012)” issued by the Agency for Natural Resources and Energy.”

First Oil Shock

* “Renewables etc.” consists of solar power (0.1%), wind power (0.2%), geothermal heat (0.1%), and biomass (3.3%).

3


0

100

200

300

400

500

600

0

50

100

150

200

250

300

350

400

450

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

(millions kL of crude oil equivalent)

65.5%

16.4%

18.1%

43.3%

23.2%

33.5%

Real GDP 19732011

2.4-fold growth

Transport sector

Residential & Commercial sector

Industry sector

(¥trillions)

Trends in Final Energy Consumption in Japan

Sources: “Comprehensive Energy Statistics (Preliminary Report for 2012) ” and “Annual Report on National Accounts.”

Final energy consumption

1973→2012

1.3-fold growth

Transport

19732012

1.8-fold growth

Residential &

Com

mercial

19732012

2.4-fold growth

Industry

19732012

0.9-fold growth

4


Energy security

Energy security

Economic efficiency

Energy security Environment

Economic efficiency

Energy security Environment

Economic efficiency

1973: First oil shock

1970s

1990s

2000s

+

+ +

+ +

[(4) Enhancing resource security (2000s)]

[(1) Responding to the oil crises (1970s-80s)]

1980s [(2) Promoting regulatory reform (since 1990s)]

[(3) Coping with global warming issues (since 1990s) ]

[(5) Current Basic Energy Plan]

1979: Second oil shock

1997: Kyoto Protocol adopted 2005: Kyoto Protocol came into effect

Enhanced resource security

2002: Basic Act on Energy Policy enacted 2003: Basic Energy Plan established (revised in 2007 and 2010)

3Es =

Japan’s Energy Policy History

5

Japan lacks natural resources which are indispensable to economic and social activities. In order to meet changing economic and energy situations at home and abroad, Japan has reviewed its energy policy in order to ensure energy security, economic efficiency, and environmental preservation.


1. Energy Policy

6


3. Consumption Sector

To Overcome energy challenges while reducing costs in the procurement, distribution, and consumption sectors.

1. Production (Procurement) Sector

(2)Strict assessment of power rate (Cut down fuel cost)

2. Distribution Sector ＜Diversify electricity sources＞ (1)Maximize introduction of renewable energy

①Deregulation (E.g. Accelerate procedures for environmental

assessments) ②Promote wind and geothermal power, through enhancing grid, etc.

(2)Restart nuclear power plants once safety is assured. (3)Introduce high-efficiency thermal power plants

(coal and LNG) while considering the environmental impact

〈Diversify fuel sources〉 (1)Procure low-cost LNG. (2)Promote development of domestic energy

sources including methane hydrate.

(1)Enhance competitiveness and promote energy efficiency by installing cutting edge and efficient facilities in industries.

(2)Enhanced energy conservation by adding house/buildings, in the Top Runner Program.

(3) Promote efficient energy management systems such as demand response.

(1) Electricity market reform ①Full liberalization of generation and retail. ②Unbundling ③Nation wide transmission operation

Japan’s New Energy Policy

7


2. LNG

8


Source: Compiled by METI through power company hearing etc 9

The nuclear power ratio in domestic power generation has decreased after the Great East Japan Earthquake due to the long-term shutdown of nuclear power plants .

On the other hand, the thermal power ratio has increased to 90%. Currently, LNG thermal power alone accounts for nearly 50% of domestic power generation.

Change in Power Formation

9


0

100000

200000

300000

400000

500000

600000

2010年度 2011年度 2012年度 2013年度

その他

原子力

水力

天然ガス

石油

石炭

Japan’s Energy Demand Outlook

Source: The Institute of Energy Economics, Japan ※Assuming that 9 nuclear power plants will resume generation by 2013

（100bnkcal）

89 MTA

17.2％ increase

FY2010 to FY2012 Increase by 20 M tons

Nuclear

5.2％ increase

1.2％ increase

88 MTA

84 MTA 71 MTA Other

Water

Natural Gas

Oil

Coal

FY 2010 (actual)

FY 2011 (actual)

FY 2012 FY 2013

After the Great East Japan Earthquake, Japan’s LNG demand increased by 30% due to the shutdown of nuclear power plants. （2010fy 70M tons → 2012fy 90M tons）

Japanese LNG Imports Increased by 30%

10


LNG/ Natural Gas price trend（unit: US dollar／MMBTU）

Different Pricing for Each Market

Due to the segmentation, each regional market has its own pricing formula and therefore its own price range.

- Asia Market: $16-18, Europe Market: $10-12, US Market: $3-5 (per MMBTU)

0.0

5.0

10.0

15.0

20.0

25.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Japan's LNG Import Price

EU Gas Price（NBP）

US Gas Price（Henry Hub）

10.5$/MMBTU

16.1$/MMBTU

3.7$/MMBTU


-15

-10

-5

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013

Trade balance

Current account balance

Trade deficit (2013) 11.5 Trillion yen

（trillion yen）

In 2011, due to the increase in fuel import costs, Japan recorded a trade deficit for the first time in 31 years. The trade deficit for 2013 is 11.5 trillion yen.

Lowering fuel import costs is an urgent task for the Japanese government.

Changes in trade balance and current account balance

（trillion yen）

12

Fuel Import Cost Heavily Impacts Japanese Economy

2010 2013 Difference

Trade Balance

6.6 - 11.5 - 18.1

Net Import Costs

LNG 3.5 7.1 +3.6

Crude Oil 9.4 14.2 +4.8

Petroleum Products

2.4 3.7 +1.3

Coal 2.1 2.3 +0.2


Japan’s strategy to secure more competitive gas

Supply Side Strategy

1. Early realization of LNG imports from the US 2. Diversification of supply source - Canada (LNG Canada, Pacific Northwest LNG, Aurora LNG , Triton LNG) - Russia (Vladivostok LNG Project, Far East LNG Project), - Mozambique (Rovuma Offshore Gas Field Area 1 Project),

3. Acceleration of projects operated by Japanese firms - Ichthys LNG Project in Australia

Demand Side Strategy

1. Review applications to restart nuclear power plants 2. Stringent assessment on raising electricity tariff - Top-runner approach

3. Re-evaluation of coal power plants 4. Accelerate domestic resource development - Methane Hydrate 5. Relaxation of Destination Clauses

13


Abundant LNG supply from the US

Project Export Approval

Status

Production Capacity

（Japan’s claim)

Start of Production

1 Sabin Pass Approved

（2011.5.20) 17 MTA 2015

2 Freeport Approved

（2013.5.17） 10.8 MTA （4.4MTA）

2018

3 Lake Charles Approved （2013.8.7）

15.4 MTA 2018

4 Cove Point Approved

（2013.9.11） 5.75 MTA （2.3MTA）

2017

5 Freeport（Expansion） Approved

（2013.11.15） 3.1 MTA

（2.2MTA） 2019

6 Cameron Approved

（2014.2.11） 13.1 MTA （8.0MTA）

2017

Total of all applications 274 MTA

= Projects with participation by Japanese firms (Total 17MTA)

Approved Projects

Four Approved projects = 65 MTA => Scheduled to be exported to Japan and other Asian markets starting 2015 => Asia’s current LNG demand is over 160 MTA Japan’s LNG claims from 4 projects totals 17 MTA (Equivalent to 20% of Japan’s annual LNG imports).

14


Japan’s LNG claims from 4 projects totals 17 MTA (Equivalent to 20% of Japan’s annual LNG imports). The exports are expected to start in 2017.

Mitsubishi, INPEX, etc. participate in the upstream

Mitsui, MOECO, etc. participate in the upstream

○ Cove Point（Dominion）・ Capacity :5.75 MTA ・ Start Operation： around 2017 ・ Export license for Non-FTA: Approved (2013.9.11) ・ Sales：Sumitomo , Tokyo Gas and Kansai Electric

Power 2.3 MTA

○ Cameron（Sempra Energy）・ Capacity :12 MTA ・ Start Operation： around 2017 ・ Export license for Non-FTA: Approved (2014.2.11) ・ Sales：Mitsubishi Corporation, Mitsui Co. Ltd; Total of 8 MTA

○ Freeport（Freeport）・ Capacity : 8.8 MTA ・ Start Operation： around 2018 ・ Export license for Non-FTA: Approved （2013.5.17) ・ Sales：Osaka Gas and Chubu Electric

Power: Total of4.4 MTA

Japan related Major LNG projects in North America

United States

Mitsui, Sumitomo, etc. participate in the upstream

Taking Advantage of the Shale Gas Revolution: LNG Imports from the US

○ Freeport Expansion（Freeport）・ Capacity : 4.4 MTA ・ Start Operation： around 2019 ・ Export license for Non-FTA: Approved （2013.11.15) ・ Sales：Toshiba 2.2 MTA

15


Japanese firms such as Mitsubishi Corporation, JAPEX and INPEX are participating in upstream development and LNG projects in the Province of British Columbia.

Many LNG projects expected to export LNG to the Asian-Pacific market are under development. Production from 4 projects involving Japanese firms total 40MTA with Japan’s claim totaling 8.6

MTA. The exports are expected to start around 2018

Pacific North West LNG Project ・JAPEX ・Production Scale：12 MTA ・Production Start：End of 2018

LNG Canada Project ・Mitsubishi Corporation ・Production Scale：12 MTA ・Production Start：2019

Aurora LNG Project ・INPEX ・Production Scale：10 MTA ・Production Start：2020

Triton Gas Project ・Idemitsu ・Production Scale：2 MTA ・Production Start：2017 ※Liquefaction plant site TBD

Taking Advantage of the Shale Gas Revolution: LNG Imports from Canada

16


LNG Projects by Japanese Firms

（USA）

Vladivostok LNG Project (Russia) ・Under review by Gazprom and JFG (Itochu, Marubeni, JAPEX, INPEX) ・Production scheduled to start in 2018 Far East LNG Project ・Undergoing preliminary studies by Rosneft and Exxon ・Production scheduled to start in 2018

Rovuma Offshore Gas Field Area1 Project (Mozambique) ・Under review by Mitsui Co. Ltd.(Japan) and Anadarko Petroleum (USA) ・Production expected to start after 2018.

Ichthys LNG Project (Australia) ・Operated by INPEX. First large project to be operated by a Japanese firm. ・Production expected to start in the end of 2016

We will support upstream development and LNG projects by Japanese firms to realize new projects in countries such as Canada, Russia, Mozambique, etc. This will encourage competition among suppliers, leading to a more competitive and stable supply.

We will also encourage utility companies to participate in upstream development.

（Canada）

Efforts to Diversify Supply Sources

17


LNG Producer-Consumer Conference

Outline of the 2nd LNG Producer-Consumer Conference Date: September 10, 2013 （9:00 a.m.-5:00 p.m.） Venue: The International Convention Center PAMIR, The Grand Prince Hotel New Takanawa (Tokyo, Japan) Participants: over 1000 from 50countries, including 90 from the Media Main Speakers: 【Consumers】 Gov.: Japanese Minister Motegi, Indian Minister, Petroleum & Natural Gas, Korean Vice Minister for Trade and Energy and Head of Cabinet, European Commission Corp.: President, Tokyo Electric Power Co. and Tokyo Gas Co., Chairman & MD, the Gas Authority of India (GAIL) 【Producers】 Gov.: Qatar Minister of Energy &Industry and Canadian Associate Deputy Minister, Natural Resources Corp.: ExxonMobil, Chevron, Total, Freeport LNG Development & Gazprom Others: Head of IEA, JBIC, JOGMEC and IEEJ, Japan

Japan’s METI has hosted LNG Producer-Consumer Conference, expecting that the conference is a platform for governments, business entities, and leading experts to exchange frank opinions on common issues concerning the LNG market

On September 10, 2013, the 2nd LNG Producer-Consumer Conference was held. More than 1000 people from 50 nations, including minister level officials and top business executives, attended the conference.

（The First Conference: 30 countries, about 600 participants) METI plans to host the 3rd conference on November 6. (The date is tentative and subject to change)

18


Relaxation of Destination Clauses

Many LNG contracts include a destination clause which restricts buyers from reselling purchased cargo.

However, globally, the destination clause for FOB (Free on Board) contracts are gradually being lifted.

METI will support and encourage movements by Japanese buyers to relax the destination clause and abolish them from FOB contracts.

Ex-Ship Contracts

FOB Contracts

Seller Buyer

LNG Export

Terminal

-Marine Transport -Insurance -Ownership -Risk burden

Seller Buyer

LNG Import

Terminal

Seller

Port A LNG

Export Terminal

Port B

Buyer

Third Party/

Country

Destination Clause in LNG Contracts

Difference in LNG Contracts

19

【North America (the U.S.A., Canada)】 • The growth of natural gas supply • Exporting excess coal to Europe • Became a net gas exporter

【Europe】 • The decline of demand for gas due to the

increase of coal • The expansion of gas import from the

Middle East, the fall of import from Russia • Introduction of various pricing methods

【Mozambique】 Increasing necessity of finding new supply destinations

【Australia】 Increasing necessity of finding new supply destinations while facing price negotiation

The Impact of the Shale Revolution on the World

【China】 • The rise of natural gas import

from Turkmenistan • Obtaining an interest in the

upstream of North America • Taking advantage in

negotiations with Russia regarding gas import

【Russia】 • Pressure to lower natural gas prices for

Europe and low supply. • Development of

Japanese/Chinese/Korean markets

【Japan】 • Multilateralization of natural gas

suppliers • Introduction of pricing methods

based on natural gas supply-demand

• Keeping resource options such as coal open

Coal export to Europe Coal import from North America

• Events already occurred • Event that will occur or progress in future

【South America】 • The possibility of production

growth and export because of developments in Argentina (shale oil), Venezuela (extra heavy oil), and other countries

【Africa】 • Declining export to the

U.S.A. due to the shale oil revolution

(1.1 mbd→0.3 mbd) • The possibility that crude

oil produced in Algeria and Nigeria (light oil) flows into European and Indian markets

• The increase of oil production • Decreasing dependence on the

Middle East (2.7 mbd→1.7 mbd)

• The possibility of the growth of export because of conventional/ non-conventional crude oil developments.

• The rise of import of crude oil from the Middle East instead of North America

【Middle East (such as Qatar)】 • Further development of European

and Asian markets

Gas export expected to be considered in future

Crude oil export expected to be considered in future

Gas movement Crude oil movement Prospects in crude oil export between 2012 and 2018 are shown in parentheses. (million barrels per day) * Quoted from IEA "Medium-Term Market Report 2013"

• The decrease of crude oil export to the U.S.A.

(2.7 mbd→1.7 mbd) • Further expansion of export to Asia

(mainly China and India) (For China: 2.6 mbd→2.9 mbd)

20


Planned LNG Terminal

Planned LNG Projrct

Existing LNG Terminal

Existing LNG Project

Sengkang

Donggi Senoro Arun

Bontang

Greater Sunrise PNG

Abadi

Ichthys Queensland Gurtis, GLNG,APLNG Browse Gorgon

Sakhalin Ⅱ

Vladivostok

Alaska Alaska

Sodegaura Negishi Futtsu, etc

Chita LNG Office Chita-Midorihama Chita Joint Terminal, etc Senboku 1･2

Himeji LNG Terminal, etc

Pluto

North West Shelf

Darwin

Tangguh

Brunei Malaysia

Bataan

Hawaii Pagbilao

Jurong island

Wheatstone

Natural gas demand (2010 → 2035) World 3307bcm 4955bcm + 49% Asia 575bcm 1347bcm +134% OECD 1597bcm 1937bcm + 21%

Major LNG projects, LNG receiving terminals in the Asia-Pacific region

Asia, the Fastest Growing Region

21


Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers & oil-linked pricing mechanisms

Major global gas trade flows, 2035

Source: IEA, World Energy Outlook 2012

The Shifting Balance of Supply & Demand Points to a More Globalized Market

22


3. Methane Hydrate

23


2. Shallow Methane Hydrate 1. Deep Methane Hydrate

１．Offshore Production Test - From March 12-18, 2013 - World’s first experiment of methane hydrate gas

production in a sea area using the depressurization method

- Total output: 120,000 cubic meters Ave. daily output: 20,000 cubic meters ２．Future plans - Improve technologies for commercialization by 2018 ３．Cooperation with Other Countries - US: Signed Statement of Intent in 2008. Have

continued cooperation including an on-shore production test.

- India: Announced Joint Statement of cooperation in Sep, 2013.

１．Actions to assess reserve amounts - Shallow methane hydrates mainly exist on the

Sea of Japan side of Japan - Will conduct research starting in 2013 to 2016 in

order to assess the resource reserve amount - Conducted geological research in 2013 and

discovered 225 gas chimneys where Methane Hydrate may exist. Currently, analyzing data

２．Future Plans - Conduct detailed and wide-area geological

research and also gather shallow methane hydrate samples in 2014

Domestic resource development (Methane Hydrate)

Gas Chimney Example of cross-section diagram of the sea bed

Flare from offshore production test

24


4. Nuclear

25


There are 48 nuclear power plant units in Japan. All units (in red) are in a state of temporary shutdown as of February 24 2014. 17 units (in blue squares) are under review for restart by the Nuclear Regulation Authority in

accordance with its new safety regulations.

1 2 3 4 5 6 7

1 2

1 2

1 3 2

1 2 3 4

1 2 3 4

1 2

1 2 3 4

1 1 2 3

1 3 2

1 2

1 2 3 4

3 4 5

1 2 3

NPP in operation

NPP in shutdown

Under review by Nuclear Regulation Authority(NRA) shutdown

26

Nuclear Power Plants in Japan


Relation between import of fossil fuel and utilization of nuclear power (2011)

Luxembourg Norway

Italy

Portugal

Turkey

Austria

Greece

Poland

New Zealand

Denmark

Australia

Ireland

Korea

Japan

Belgium

France

Slovak Republic

Spain

Switzerland

Hungary

Germany Finland Sweden

Czech Republic United Kingdom

United States

Netherlands

Canada

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

原油輸入における中東依存度

ガス輸入におけるロシア依存度

原子力非利用国

原子力利用国

OIL INFORMATION(IEA,2012) , NATURAL GAS INFORMATIONS(IEA,2012)

28

dependence on Russia (Gas)

dependence on Middle East (Oil)

Non-utilization of Nuclear power countries

Utilization of Nuclear power countries


Discussion with academics at the Commission of NRA

Review by experts * Listening to other academics and electric utilities

Compile an outline of New Nuclear Safety Regulation (February 6)

Public Comment (until February 28)

Hearings from Experts, Electric utilities

(severe accident countermeasures only)

Draft texts of Nuclear Safety Regulation (April 10, 2013)

Public Comment (until May 10)

Publication・Enforcement (July, 2013)

Schedule of the Introduction of the New Nuclear Safety Regulation

Applications for restart were made in 17 reactors in 9 power-stations (as of Today) 28


Geological disposal repository

Next reprocessing

plant

（ 5.5~6.5tHM/y Plutonium usage by 16 to 18 MOX fuel load nuclear reactor *Including 1.1tHM/y plutonium usage by Ohma Nuclear Power Plant ）

MOX fuel from foreign reprocessors

Plutonium quantity possessed by electric power supplier （storage in UK and France） 23.3tHM

Fast Breeder Reactors(FBR)

MOX Fuel

Storing : approx.14,000tU Storage capacity : approx.20,000tU

Nuclear Power Plant

(Spent Fuel Pool etc.)

Waste (from Spent Fuel

Reprocessing) returned from

UK and France

Vitrified Waste Storage Center

sub-surface disposal test cavern

Low-Level Radioactive Waste Disposal Center

Storing : approx.2,900tU Storage Capacity : 3,000tU

JNFL: Japan Nuclear Fuel Limited ＭＯＸ：Uranium-plutonium mixed oxide

（start of construction : 2010 plan of operation : 2016）

Mutsu：5000tU （start of construction : 2010

Plan of operation : 2013） Study on implementation of sub-surface disposal for waste from decommissioning(2002FY~)

Spent Fuel

Spent Fuel

JNFL Rokkasho

Reprocessing Plant

Off-site storage facility (Spent Fuel Interim Storage)

MOX Fuel Fabrication Plant

Electric power supplier （Tokyo Electric Power co./ Japan Atomic Power co.）

Ohma Nuclear Power Plant (utilized fully load MOX fuel)

Waste from operation

Waste from operation and decommissioning

Vitrified Waste

Spent Fuel

JNFL

Plutonium over 4tHM/y

Nuclear Fuel Cycle in Japan

29

http://ja.wikipedia.org/wiki/%E7%94%BB%E5%83%8F:Flag_of_France.svg

http://ja.wikipedia.org/wiki/%E7%94%BB%E5%83%8F:Flag_of_France.svg


○The nuclear power ratio in domestic electricity production has dramatically decreased due to long-term shutoff of each Nuclear Power Plant (NPP) for periodical inspection after the quake disaster. (Oh-I No. 3 and 4 resumed in July, 2012.)

○ On the other hand, the thermal power generation ratio has increased up to 90%, especially LNG thermal which is about 50%.

○ And with the shutoff of NPP, replacement fuel costs from thermal generation are estimated to increase 3.1 trillion Yen from FY2010 to FY2012. In FY2013, it is estimated that fuel costs will increase 3.6 trillion Yen over FY2010.

○ Trend of PWR Formation for Power Suppliers (general electricity utility and wholesale electricity utility) after Quake Disaster

Power Category

Fuel Cost (FY2012)

Cost Impact Amount

Estimation in FY2012

Estimation in FY2013 (※)

Nuclear ¥1/KWh - 0.3 Trillion ¥ - 0.3 Trillion ¥

Coal ¥4/KWh + 0.1 Trillion ¥ + 0.1 Trillion ¥

LNG ¥11/KWh + 1.4 Trillion ¥ + 1.7 Trillion ¥

Oil ¥16/KWh + 1.9 Trillion ¥ + 2.1 Trillion ¥

Total － + 3.1 Trillion ¥ + 3.6 Trillion ¥

○ Fuel Cost Increase from Nuclear Power Shutoff

20% 25% 26% 25%

20% 27% 26% 26%

23%

38%

41% 42% 47% 50%

46% 48% 48%

32%

5%

7% 13%

17% 16% 13% 16% 18%

5%

28% 16%

10% 5% 1% 1%

3% 2%

32%

9% 11% 8% 5% 12% 12% 7% 6% 8%

63%

73%

81% 90% 87% 87% 90% 92%

28%

16% 10%

5% 1% 1% 3% 2%

11年4月７月１０月 12年1月４月７月１０月 13年1月 10年度

石炭火力発電比率 LNG火力発電比率石油火力発電比率原子力発電比率

水力発電等火力発電比率原子力発電比率

Apr., ’11 Jul. Oct. Jan., ’ 12 Apr. Jul. Oct. Jan., ‘13 FY10

Nuclear PWR Ratio Coal Thermal PWR Ratio

Hydraulic PWR Ratio

LNG Thermal PWR Ratio

Thermal PWR Ratio

Oil-Fired Thermal PWR Ratio

Nuclear PWR Ratio

Change in Power Formation and Fuel Costs after Quake Disaster

30


Movements of Electric Utilities toward Electricity Rate Increase

* It indicates an increase rate at the liberalization division for cost calculation corresponding to the increase rate at the regulation division, and the electricity rate at the liberalization shall be determined

through negotiations between the parties concerned in principle. 31

Increase

Date of application Date of implementation Applied Approved

Tokyo Electric Power

Company

Regulation division 10.28% 8.46% (▲1.82%) May 11, 2012 September 1, 2012

Liberalization division (16.39%) (14.90%) (▲1.49%) - After April 1, 2012

Kansai Electric Power

Company

Regulation division 11.88% 9.75% (▲2.13%) November 26, 2012 May 1, 2013


Kyushu Electric Power

Company

Regulation division 8.51% 6.23%(▲2.28%) November 27, 2012 May 1, 2013


Tohoku Electric Power

Company

Regulation division 11.41% 8.94% (▲2.47%) February 14, 2013 September 1, 2013

Liberalization division (17.74%) (15.24%) (▲2.50%) - After September 1, 2013

Shikoku Electric Power

Company

Regulation division 10.94% 7.80%(▲3.14%) February 20, 2013 September 1, 2013

Liberalization division (17.50%) (14.72%) (▲2.77%) - After July 1, 2013

Hokkaido Electric

Power Company

Regulation division 10.20% 7.73% (▲2.47%) April 24, 2013 September 1, 2013

Liberalization division (13.46%) (11.00%) (▲2.46%) - After September 1, 2013

Chubu Electric Power

Company

Regulation division 4.95% October 29, 2013 April 1, 2014

Liberalization division (8.44%) - April 1, 2014

Ministry of Economy, Trade and Industry Agency for Natural Resources and Energy (1) Since the 1980s, international reorganization and consolidation of nuclear plant manufacturers in the world have advanced.

(2) In recent years, integration of Japanese and U.S. nuclear plant manufacturers has advanced (Toshiba’s acquisition of West inghouse, establishment of a new Japanese and

U.S. company by Hitachi and GE). The industrial cooperative relationship between Japan and the U.S. has become closer. In addition, Mitsubishi and AREVA

established a joint venture for midsize reactors.

1980s

ABB is established through

merger (1988)

Combustion Engineering (CE, U.S.)

WH (U.S.)

Acquired by Toshiba (Oct 2006)

Asea (Sweden)

Brown Boveri et Cie (Switzerland)

Asea Brown Boveri (ABB)

WH (U.S.) WH (U.S.)

BNFL acquires ABB’s nuclear business,

and integrates it into WH (2000)

ABB acquires CE,

making it its subsidiary (1989)

BNFL acquires WH (Note 2), making

it Its subsidiary (1999)

Babcock & Wilcox (U.S.)

Siemens (Germany) Siemens (Germany)

Framatome (France) Framatome (France)

(holding company AREVA is established and affiliated (Sept 2001))

Business integration (Jan 2001)

Present

GE (U.S.) GE (U.S.) GE (U.S.)

Hitachi (Japan) Hitachi (Japan) Hitachi/GE (Japan/U.S.)

Hitachi (Japan)

Toshiba (Japan) Toshiba (Japan) Toshiba (WH) (Japan/U.S.) Toshiba (Japan)

Mitsubishi Heavy Industries (Japan) Mitsubishi Heavy Industries (Japan) Mitsubishi Heavy Industries (Japan) Mitsubishi Heavy Industries (Japan)

Framatome ANP (France) AREVA NP Note 1 (France)

BNFL (U.K.)

Note 1: Renamed to “AREVA NP” on March 1, 2006

Note 2: U.S. defense/environment-related business is acquired by Washington Group International (U.S.)

・B&W Nuclear Technologies

・B&W Fuel (part of the equipment production division is consolidated into B&W Canada) Sold to Framatome

Joint venture ATMEA is established (Sept 2007)

(jointly developing midsize reactors)

Reorganization/new company establishment

in the field of nuclear (Jul 2007)

Mainly PWR Mainly BWR Both PWR and BWR РосАтом (Russia) Civil nuclear divisions such as reactor production, enrichment, fuel fabrication, and uranium mine development are integrated (formally inaugurated in Mar 2008)

2000s 1990s

Doosan Heavy Industries (S. Korea) ABB-CE’s SYSTEM80 is improved and standardized

Korea Hydro & Nuclear Power (KHNP), a subsidiary of Korea Electric

Power, comprehensively manages design, construction and operation

: Nation that has advanced a back-shift-from nuclear policy

: Nation where establishment/expansion of nuclear plants has slowed down

China National Nuclear Corporation (CNNC) (China)

China Guangdong Nuclear Power Group (CGNPC) (China)

China National Nuclear Corporation (CNNC) (China)

China General Nuclear Power Group (CGN) (China) Introduction and localization of technologies from WH and Framatome

Introduction and localization of technologies from Framatome

Transitions of Major Nuclear Plant Manufacturers in the World

32


in 2030 (low-level expected）

in 2030 (high-level expected） *Compiled from data of the total installed capacity of nuclear power generation in the world (GW) published by IAEA in September 2012

○ The total installed capacity of nuclear power generation in the world is expected to grow 1.25 - 2.0 times by 2030 by IAEA. (Converted into the number of Plant- Unit, it’s estimated to increase around 80 – 370 units (4 – 20 units per year)(expectation of METI))

○ It is expected the large expansion in the area of East Asia, East Europe, Middle-east/South Asia.

South-East Asia/Pacific Area （0GW → 0GW ／6GW）

East Asia （84GW → 153GW／274GW）

Middle-east/South Asia （7GW → 30GW／52GW）

East Europe （49GW → 80GW／107GW）

West Europe （114GW → 70GW／126GW）

Africa （2GW→5GW／13GW）

South America （4GW→ 7GW／14GW）

North America （112GW → 111GW／148GW）

in 2013 current

The total installed capacity of nuclear power generation in the world（GW）

Outlook for Major National and Regional Markets

33

5. Electricity System Reform

34

Current electricity system • Partial liberalization: retail competition for over 50kW customers • Retail Players: 10 big EPCOs (vertically integrated, regional monopoly), PPS, etc. • Reality is…

• Share of non-EPCO power producers and suppliers : 3.6% • O.6% of the total retail market sales is transacted at JEPX

<Cf.> • Market volume: 1000TWh/ 280GW • Electricity price (2011): 16.8 yen (average), 21.3yen (household), 14.6yen (industry)

Hokkaido [2012] 5.52 GW

Tohoku [2012] 13.72 GW

Kansai [2012] 26.82 GW

Hokuriku [2012] 5.26 GW

Kyushu [2012] 15.21 GW

Chugoku [2012] 10.85 GW

Shikoku [2012] 5.26 GW

5.57GW 16.66GW

5.57GW 2.4GW

5.57GW 0.3GW

0.6GW

12.62GW

1.2GW

DC Tie line

BTB

DC Tie line Chubu

[2012] 24.78 GW Tokyo

[2012] 50.78 GW 1.4GW

Frequency in West: 60Hz

FC

* DC – direct current, FC – frequency conversion

Frequency in East: 50Hz

35

History of Reforms in Japan

No. Year enforced Overview

1 1995 • Open the IPP (Independent Power Producer) market • Allow specified-scaled and vertically integrated power

generators

2 2000 • Introduce partial retail competition • Accounting separation of transmission/distribution sector

3 2005 • Expand retail competition • Establish the wholesale power exchange (JEPX) and its

supporting body for transmission in wider areas

4 2008 • Modify the rule of wheeling rates

No competition in the electricity market before 1995: 10 vertically integrated GEUs (General Electricity Utilities) dominated and controlled the market.

METI embarked series of reforms...

36

Problems Revealed by 3.11

Chugoku EPCO

Kansai EPCO

Hokuriku EPCO

Hokkaido EPCO

Tohoku EPCO

Kyushu EPCO

Chubu EPCO

Tokyo EPCO (TEPCO)

Okinawa EPCO

Shikoku EPCO

• Negative aspects of regional monopoly system were revealed: 1. Lack of system to transmit electricity beyond regions 2. Little competition and strong price control 3. Limit in handling the change in energy mix including the increase in

renewables

37

Agency for Natural Resources and Energy organized the Expert Committee on Electricity System Reform in February 2012. The Committee compiled an interim report, “The Basic Policy on Electricity System Reform,” at the July 13 meeting.

In November, the Committee started discussion on detailed designs for reform. Based on the discussions over 12 meetings, the Committee compiled a final report on February 8, 2013.

The Members of the Expert Committee of Electricity System Reform

<Chairman> Motoshige Ito Professor at Graduate school of Economics, The University of Tokyo

<Deputy Chairman> Junji Annen Professor at Law School Academy, Chuo University

<Members> Toshinori Ito Representative Director and analyst at Ito Research and Advisory Co., Ltd.

Hiroko Ohta Professor, National Graduate Institute for Policy Studies

Junichi Ogasawara Chief Research fellow and Manager at The Institute of Energy Economics, Japan, Electric Power Group

Takao Kashiwagi Specially appointed professor at Tokyo Institute of Technology

Hiroshi Takahashi Chief researcher at Fujitsu Research Institute of Economics Co., Ltd.

Kikuko Tatsumi Regular adviser, Public Corporation, Nippon Association of Consumer Specialists

Tatsuo Hatta Special visiting professor, Gakushuin University

Toshihiro Matsumura Professor at The Institute of Social Science, The University of Tokyo

Akihiko Yokoyama Professor at Graduate School of Frontier Sciences, The University of Tokyo

Expert Committee on Electricity System Reform

38

Cabinet Decision on Electricity System Reform

• Based on the Expert Committee Report, the Cabinet decided to approve the Policy on Electricity System Reform on April 2, 2013.

http://www.meti.go.jp/english/press/2013/pdf/0402_01a.pdf

• 3 objectives:

(1) Securing a stable supply of electricity (2) Suppressing electricity rates to the maximum extent possible (3) Expanding choices for consumers and business opportunities • To achieve these objectives, a bold reform will be steadily carried out

according to a realistic step by step schedule, focusing on the following 3 items:

39

Agenda 1: Cross-regional Coordination of Transmission Operators

• Establish the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) by about 2015

• Main functions of OCCTO: Detailed plans are still being discussed 1. Aggregate and analyze the EPCO’s supply-demand plans and grid plans, and order to change

EPCO’s plans such as for tie lines 2. Coordinate supply-demand balancing and frequency adjustments by T/D sectors in each area 3. Order EPCOs to reinforce generations and power interchanges under a tight supply-demand

situation

Order, as necessary

Order to change the plans, as necessary

Wholesale Electricity Utilities

（J-Power etc)

Organization for Cross-regional Coordination of Transmission Operators (OCCTO)

Power Producers and Suppliers

（PPS）

General Electricity

Utilities (GEU)

Electric Power Companies (EPCOs)

Specified Electricity Utilities

METI

Order, as necessary

Submit a supply-demand plan and a grid plan to METI through OCCTO

Submit the nationwide plans, aggregating and analyzing all plans from EPCOs

40

Function of OCCTO

1. To implement items such as formulating a supply-demand plan and an electrical grid plan, promoting the development of an infrastructure for transmissions such as frequency converters and interconnection lines between areas, and a nationwide system operations beyond control areas.

2. Under normal situations, to address coordination from the viewpoint of wide-area operation regarding the supply-demand balancing and frequency adjustment by transmission/distribution companies in each area.

3. Under a tight supply-demand situation due to trouble such as disaster, to balance supply and demand by means of ordering reinforcement of thermal power sources and power interchange.

4. To neutrally carry out the reception of interconnection to new power sources and provide grid information.

41

(Voltage (V))

[Contract (kW)]

【50kW】

【500kW】

【2,000kW】

（20,000V）

（100～200V）

（6,000V）

(Note) The scope of liberalization of Okinawa Electric Power Company was expanded in April 2004, from users of power over 20,000kW, 60,000V, to extra-high-voltage power users (over 2,000kW, in principle).

[High-voltage power for industrial uses] Supermarkets, small and medium buildings Share of total power: 19%

[High-voltage B power] Medium-scale factories Share of total power: 9%

[Extra-high-voltage power for industrial uses] Large-scale factories [Extra-high-voltage power for commercial uses] Department stores, office buildings

Share of total power: 26%

Liberalized segment

[High-voltage A power] Small-scale factories Share of total power: 9%

[Extra-high-voltage power for industrial uses] Large-scale factories [Extra-high-voltage power for commercial uses] Department stores, office buildings [High-voltage B power] Medium-scale factories [High-voltage power for commercial uses (over 500kW)] Supermarkets, small and medium buildings

Share of total power:40%

Liberalized segment Liberalized segment

[High-voltage power for commercial uses] Up to 500kW Share of total power : 14%

[Extra-high-voltage power for industrial uses] Large-scale factories [Extra-high-voltage power for commercial uses] Department stores, office buildings [High-voltage B power] Medium-scale factories [High-voltage power for commercial uses] Supermarkets, small and medium buildings [High-voltage power A] Small-scale factories


March 2000 April 2004 April 2005

[Low-voltage power] Small-scale factories, convenience stores

Share of total power: 5% [Electric light] Households








[High-voltage A power] Small-scale factories Share of total power: 9%

Agenda 2: Full Retail Competition

• Expand retail competition to the residential sector around 2016 • Maintain regulated tariffs to 10 big EPCOs until around 2018-2020

42

Activate generation competition

• Little use of the current wholesale market (JEPX)

• Activate the wholesale market − Introduce various products such as intra-day and futures − Secure the balancing market at the same time etc.

• Promote the “nega-watt” trading etc.

Share of trading in JEPX to retail market sales

0.6%

99.4%

（5.68 TWh）

（920.69 TWh）

Trading in JEPX

Others

97%

3%

89%

6% 5%

（0.18 TWh）

（5.5TWh）

Breakdown of 3％

（9.03 GWh）（11.7 GWh）

（162GWh）

Breakdown of trading in JEPX

Day-Ahead spot trading

Others

4 hour-Ahead spot trading New

Forward trading

Forward trading

43

Agenda 3: Unbundle the transmission/distribution sector

• Unbundle the transmission/distribution sectors by ITO-style (legal unbundling) at around 2018-2020

送配電設備

Gen

eration

Retail

Transmission/ distribution

(System o

peratio

n)

(Transm

ission

/ d

istribu

tion

facilities)

Holding company

• Regional monopoly • Network tariff • Responsibility for maintaining frequency

& providing LR service • Code of conduct

Competitive Competitive Regulated

44

1) Construct and maintain transmission and distribution lines

2) Operate electric system (dispatch to each plant, stable power supply by operating the transmission/distribution lines)

3) Set up meters, metering

4) Provide “last resort service” and “universal service to isolated islands”

1) The case that a company has both retail sector and power sector.

Thermal plant Nuclear power plant Wind farm,etc. Hydroelectric plant

Primary substation

Substation for distribution

Large factory Large building

Building Medium factory Small factory Household Shop

Meter Meter Meter Meter Meter

220-500kV

220-500kV

220-500kV

154-220kV 154-220kV

Consumers

Retailers

Generation companies

Contract with retailer to sell

electricity

Retail contract with consumers

Not necessary to have assets

66-154kV

6.6kV

100/200V

6.6kV

66kV

A Generation companies 1) Construct plants

2) Purchase fuel

3) Operate plants

4) Sell power to retailers (or retail section in the company)1)

C Retailers 1) Purchase electricity to sell to consumers (purchase

from power company or power sector in the company)1)

2) Develop and provide tariff menus

3) Business to consumers, provide services

4) Collect the tariff

Transmission

Distribution

Wheeling contract

• 1) Regional monopoly, tariff regulation, 2) Guaranteed return of investment on lines through the regulated electricity rate, 3) Obligation to provide universal service, to maintain balance of demand-supply

• Code of conducts on some issues such as personnel, and accounting to secure neutrality

Regional monopoly,

tariff regulation

Transmission/ Distribution companies

Receive electricity from various power companies

Super high voltage substation

Generation companies, Transmission/Distribution companies and Retailers after the reform

B Transmission/Distribution companies

45

Roadmap for Electricity Market Reform in Japan

Legal unbundling of transmission

/distribution sector

【1st Stage】 Around 2015 Apr. 2, 2013

Full retail competition Abolishment

of retail tariff

Period of transitional arrangement for retail tariff

【2nd Stage】 Around 2016

【3rd Stage】 Around 2018 through 2020

Establishment of the Organization for Cross-regional Coordination of Transmission Operators

(OCCTO)

Bills

Reforms

1st Reform: passed in Extraordinary Diet in 2013

1) Establishment of the Organization for Cross-regional Coordination of Transmission Operators (OCCTO)

2) Action programs for 2nd and 3rd reforms etc.

2nd Reform: Ordinary Diet in 2014

1) Full liberalization of entry to electricity retail business

2) Revision of applicable and regulations associated with the abolishment of GEU system

3rd Reform: Ordinary Diet in 2015 (Plan)

1) Legal unbundling of transmission/distribution sector

2) Code of Conduct

Cab

inet D

ecisio

n o

n th

e P

olicy

on

Electricity Syste

m R

eform

（※At around 2015:Transition to new regulatory organizations） 46

Securing a Stable Supply of Electricity

（１）Secure a high quality power supply such as stable frequency and voltage by continuously imposing the obligation to maintain a supply-demand balance of the whole electrical system.

（２） Have obligation to construct and maintain transmission/distribution network, guaranteed through regional monopoly and tariff regulations including fully distributed cost methods.

（３）Provide the last resort service of supply, and secure a stable supply in isolated islands at equivalent price that is comparable to that of the mainland.

Ⅰ．Transmission/Distribution companies

（１）“The Organization for Cross-regional Coordination of Transmission Operators”(OCCTO) will balance supply and

demand by means of ordering reinforcement of thermal power sources and power interchange.

（２） Government (METI) orders/requests power companies and other companies which have in-house power generation to supply power, as necessary.

Ⅱ．In Emergencies

（１）Place an obligation on electricity retailers to secure power supply capacity.

（２）Recruit power plants and construction workers who will be prepared by “the Organization for Cross-regional Coordination of Transmission Operators” (OCCTO) for future electricity shortfalls.

Ⅲ．Securing Power Supply Capacity

47

April 2, 2013 Cabinet Decision

April 12, 2013 The Bill based on the Cabinet Decision was submitted to the Diet

May 28, 2013 Discussion on the Diet started

June 13, 2013 Passed the lower house

June 26, 2013 The regular Diet session ended → The current bill was abolished → Press conference of Minister Motegi

“ We will submit the bill again to the next extraordinary Diet session, and surely will try to pass it.”

August 2, 2013 The Working Group for the detailed design started to discuss

October 15, 2013 The Bill which had passed the lower house on the former Diet was re-submitted to the extraordinary Diet

November 13, 2013 The Bill passed the upper house and was enacted

Status of the amending bill on Electricity Business Act

48


6. Renewable Energy

49


Japan's Use of Renewable Energy The contribution of renewable energy (excluding hydro power) to the total power generation in Japan has covered around 1%.

Since the launch of the Residential Surplus Electricity Purchasing Scheme for Photovoltaic Power in November 2009 and the Feed-in

Tariff Scheme in July 2012, Japan's use of renewable energy, led by solar power, has steadily increased.

Renewable energy accounted for 1.6% in FY2012.

＊ Created by the Agency for Natural Resources and Energy using Electric Power Statistics, RPS data, buyback under the Feed-in Tariff Scheme, etc.

(Percentage to the total power generation)

Residential Surplus Electricity Purchasing Scheme Feed-in Tariff Scheme

Japan’s use of renewable energy in percentage

0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.4% 0.5% 0.5% 0.1% 0.2%

0.2% 0.2%

0.3% 0.3% 0.4%

0.4% 0.5%

0.5%

0.3% 0.3%

0.3% 0.3%

0.3% 0.3%

0.3%

0.3%

0.3% 0.3%

0.0% 0.0%

0.0% 0.1%

0.1% 0.1%

0.1%

0.1%

0.2%

0.4%

0.6%

0.7% 0.8%

0.9% 0.9% 1.0%

1.1% 1.2%

1.4%

1.6%

0.0%

0.5%

1.0%

1.5%

2.0%

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

18,000,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

太陽光

地熱

風力

バイオマス

再生可能エネルギー合計（水力除く）

Solar Geothermal Wind Biomass Total(excluding hydro)

RPS Scheme

180

160

140

120

100

80

60

40

20

(100 million kWh)

(FY)

50


Shifts in Japan's Measures to Increase Renewable Energy Use Japan’s measures to increase the use of renewable energy shifted from (1) financial support through subsidies,

(2) aid through placing an obligation on electric power companies to source part of their electricity from renewable sources (the RPS scheme), to (3) the feed-in tariff (FIT) scheme that requires electric power companies to purchase electricity at fixed prices.

(1) Support through subsidies (1997–) Enactment of the Act on the Promotion of New Energy Usage (New Energy Act)

Provides partial financial aid to private companies implementing new-energy projects and guarantee on loans taken from financial institutions.

Provides financial aid to local governments implementing new-energy projects. (2) Support through placing an obligation (the RPS scheme) (2003–2012) Launch of the RPS Scheme in 2003

Requires electric power companies to source a specified proportion of their electricity from renewable sources (without fixed prices).

(3) Support through buyback at fixed prices (to give prospects for recovering investment) (2009–) Launch of the Residential Surplus Electricity Purchasing Scheme in 2009

Requires electric power companies to purchase home-generated solar power of less than 500 kW at the procurement price and for the procurement period set by the government.

Launch of the Feed-in Tariff (FIT) Scheme in 2012

Requires electric power companies to purchase electricity produced from renewable sources, including solar, wind, hydro, geothermal and biomass at the procurement price and for the procurement period set by the government.

Japan

51


1.7%

42.5%

27.6%

8.4%

18.3%

1.6%

Petroleum

Coal

Natural gas

Nuclear power

Hydropower

Renewable energy excluding hydropower

FY 2012

Note: “Etc.” of “Renewable energy, etc.” includes the recovery of energy derived from waste, refuse derived fuel (RDF) products, heat supply utilizing waste heat, industrial steam recovery, and industrial electricity recovery.

Source: Prepared based on the Agency for Natural Resources and Energy’s “Outline of Electric Power Development in FY 2010”

Among the total electricity generated in fiscal 2012, renewable energy, etc. accounted for approximately 10%; 8.4% of which is hydraulic power generation.

Renewable energy other than hydro is still cost prohibitive.

Natural gas

Coal

25%

Petroleum

14.4%

Nuclear power

10.7％

Hydropower

9%

1.4% Renewable energy excluding hydropower

39.5％

Composition of annual electricity generated in Japan

FY 2011

Current Composition of Power Sources in Japan

52


Under the feed-in tariff scheme, if a renewable energy producer requests an electric utility to sign a contract to purchase electricity at a fixed price and for a long-term period guaranteed by the government, the electric utility is obligated to accept this request.

Electric utility

Purchase of electricity at a fixed price for a government guaranteed period

Sale of electricity produced from renewable energy sources Electricity supply

Collection of surcharge together with the electricity charge

・Approval of facilities (Government confirms whether the facility can generate electricity stably and efficiently. The approval is cancelled when the facility no longer satisfies the requirements.) Special committee for determination of

tariff s and durations

Electricity customers

Those who generate power at home

Government

Those engaged in the power generation business using renewable energy sources

Minister of Economy, Trade and Industry

Opinion on tariffs and duration

Deciding tariffs and durations, respecting the opinion of the special committee (every fiscal year)

Decision of surcharge unit price per kWh (every fiscal year)

Surcharge adjustment organization (organization to collect and distribute the surcharge)

Submission of the collected surcharge

Payment for the purchase cost

Basic Mechanism of the Feed-in Tariff Scheme

53


Act on Purchase of Renewable Energy Sourced Electricity by Electric Utilities (Feed-in Tariff Scheme for Renewable Energy)

This Act obliges electric utilities to purchase electricity generated from renewable energy sources

(PV, wind power, hydraulic power, geothermal and biomass) at the procurement price and for the procurement period. Approved at the 177th session of the Diet 2011 and started on July 1st, 2012.

Energy source Solar PV Wind power Geothermal power Small- and medium-scale hydraulic power

Procurement category

10 kW or more

Less than 10 kW

(purchase of excess

electricity)

20 kW or more

Less than 20 kW

15,000 kW or more

Less than 15,000

kW

1,000 kW or more but less

than 30,000 kW

200 kW or more but less than 1,000

kW

Less than 200 kW

Cost

Installation cost 280,000 yen/kW 427,000 yen/kW 300,000 yen/kW 1,250,000 yen/kW

790,000 yen/kW

1,230,000 yen/kW

850,000 yen/kW 800,000 yen/kW 1,000,000 yen/kW

Operating and maintenance

costs (per year)

9,000 yen/kW 4,300 yen/kW 6,000 yen/kW － 33,000 yen/kW 48,000 yen/kW

9,500 yen/kW 69,000 yen/kW 75,000 yen/kW

Pre-tax IRR 6% 3.2% 8% 1.8% 13% 7% 7%

Proc

urem

ent

pric

e pe

r kW

h Tax inclusive

(*3) 34.56 yen 37 yen 23.76 yen 59.4 yen 28.08 yen 43.20

yen 25.92 yen 31.32 yen 36.72 yen

Tax exclusive 32 yen 37 yen 22 yen 55 yen 26 yen 40 yen 24 yen 29 yen 34 yen

Procurement period

20 years 10 years 20 years 20 years 15 years 15 years 20 years

Tariffs and Durations (PV, Wind, Geothermal and Hydro)

54


Energy source Biomass

Biomass type Biogas Wood fired power plant

(Timber from forest thinning)

Wood fired power plant (Other wood

materials)

Wastes (excluding woody wastes)

Wood fired power plant (Recycled

wood)

Cost

Installation cost 3,920,000 yen/kW 410,000 yen/kW 410,000 yen/kW 310,000 yen/kW 350,000 yen/kW

Operating and maintenance costs (per

year) 184,000 yen/kW 27,000 yen/kW 27,000 yen/kW 22,000 yen/kW 27,000 yen/kW

Pre-tax IRR (Internal Rate of Return)

1% 8% 4% 4% 4%

Tariff ( per kWh)

Tax inclusive

42.12 yen 34.56 yen 25.92 yen 18.36 yen 14.04 yen

Tax exclusive

39 yen 32 yen 24 yen 17 yen 13 yen

Duration 20 years

Tariffs and Durations (Biomass)

55


Cumulative adopted amount up to July 2012

Amount adopted in FY2012

(Jul. - Mar.)

Amount adopted in FY2013

(Apr. - Dec.)

Facilities approved from July 2012

through December 2013

Solar (Residential Approx. 4.7 GW 1.0 GW 1.1 GW 2.3 GW

Solar (Non Residential) Approx. 0.9 GW 0.7 GW 4.1 GW 26.1 GW

Others Approx. 15.0 GW 0.1 GW 0.1 GW 1.9 GW

Total Approx. 20.6 GW 1.8 GW 5.3 GW 30.3 GW

State of approval and operational start of RE facilities under the FIT program

The approval of the Minister of Economy, Trade and Industry is required for renewable energy power generation facilities for the FIT program to apply. The total output of facilities approved up to December 2013 is approx. 30.3 GW.

In comparison, the amount for facilities that began operation during the same period was 7.0 GW (a roughly 30% increase over the year the program started).

56 (Note) converted to amount of power generated, this is approx. 2.4 billion kWh for 2012, which is the

equivalent of 0.3 nuclear plants (one plant: 1.2 million kW given 70% facility utilization).

[State of adoption of renewable energy power generation]

After introduction of the FIT program Before the FIT program

7.0 GW


A comparison of solar installations and estimates in different countries

With 2,000,000 kW of capacity, Japan ranks 5th in the world for solar installations in 2012. Some private research institutes (IHS and Bloomberg in the U.S.) publish reports which forecast

the Japanese market will become the largest in the world

Installations in 2012 (IEA) Estimates for 2013 (Bloomberg)

1st Germany 7,600,000 kW Japan 6,900,000–9,400,000 kW

2nd China 3,500,000 kW China 6,300,000–9,300,000kW

3rd Italy 3,300,000 kW U.S. 3,700,000–4,300,000 kW

4th U.S. 3,300,000 kW Germany 2,900,000–3,300,000 kW

5th Japan 2,000,000 kW Italy 1,500,000–2,500,000 kW

Source: Installations in 2012: IEA-PVPS (preliminary figures), Estimates for 2013: Bloomberg

0

100

200

300

400

500

600

700

800

900

1000

日本中国アメリカドイツイタリア

2012年実績（IEA）

2013年Bloomberg

見通しの下限

Top five solar installations and estimates (10,000 kW)

200

690

940 930

630

350 330

430

370

760

330 290

330

150

250

Higher end of the estimates for 2013 by Bloomberg

Lower end of the estimates for 2013 by Bloomberg

2012 by IEA

Japan China US Germany Italy

57


1,552,000 kW

Less than 10kW (Residential use)

73%

Business use 10–999kW

20%

Business use 1,000kW or more

7%

住宅用 81%

990,000 kW

Residential use 81%

Business use 19%

After the launch (Capacity of facilities that began operation from

April 2012 to the end of February 2013) Before the launch (Installations in 2010)

Before the launch of the Feed-in Tariff Scheme, residential use accounted for the majority of the market. The commercial market grew over time following the launch of the scheme, as seen in the increasing

construction of mega solar power facilities (with capacity of 1000 kW or more), which were scarce before the launch.

Trends in Japan's Solar Power Market

(Mega Solar)

58


Wind power generation costs are favorable even compared to thermal and hydro sources. As wind power is cost effective relative to other renewable sources, it is seen as a key to increasing the use of renewable energy. However, it should be noted that it has economies of scale.

66% of areas that have wind speed of over 6.5 meters per second—the level considered necessary to ensure business profitability—are concentrated in Hokkaido (45%) and Tohoku (21%).

Challenges to increase installations of wind power include improving the power grid in sites suitable for wind power generation (part of Hokkaido and Tohoku) and streamlining regulations.

Estimated wind power generation costs by capacity (by NEDO)

Current Status of Wind Power (Onshore Wind Power)

Source: NEDO Renewable Energy Technology White Paper

0

5

10

15

20

25

30

(yen/kWh)

Sites suitable for wind power generation (part of Hokkaido and Tohoku)

24.0

18.0

14.0

10.0

59


CountryGeothermal resources (10,000 kW)

Installed capacity ofgeothermal power (10,000 kW)

U.S. 3,000 309.3Indonesia 2,779 119.7Japan 2,347 52.0Philippines 600 190.4Mexico 600 95.8Iceland 580 57.5New Zealand 365 62.8Italy 327 84.3

Current Status of Geothermal Power

Geothermal reserves in Japan

Source: National Institute of Advanced Industrial Science and Technology, 2011

About 23,400,000 kW

Geothermal power, which has a higher operating rate (70%) compared to other renewable sources of energy, is expected to serve as a long-term stable energy source.

Japan has the world's third largest reserve of geothermal resources (23,400,000 kW) but has only 520,000 kW of installed capacity.

The government eased regulations on development in designated national parks and monuments that have abundant geothermal reserves and are concentrated with sites that allows for power generation at low cost (March 2012). Projects are underway in Hokkaido, Tohoku and Kyushu.

Three Japanese manufacturers, Mitsubishi Heavy Industries, Toshiba and Fuji Electric, account for 70% of the global market for geothermal turbines.

Toshiba25%

Mitsubishi23%

Fuji19%

Ansaldo12%

Ormat11%

Others10%

Total = 10.6GW

Global geothermal turbine market share

Italy

Israel

Japan (70%)

10,600,000 kW in total

Source: Bloomberg Source: Materials provided by the National Institute of Advanced Industrial Science and Technology, 2007

World geothermal resources

Reserves 23,400,000kW

Inside National park 79%

Outside National park 21%

60


7. Energy Efficiency

61


Japan has improved energy efficiency by approx. 40% after the oil crises in the 1970s as a result of positive actions by both public and private industrial sectors. Japan intensively introduced "Energy Management System based on Energy

Conservation Law”, then achieved the lowest level of energy consumption per GDP in the world.

Source）Total Energy Statistics by ANRE/METI

Primary energy use per real GDP of Japan

（Oil converted Mt /1 trillion yen）

Approx. 40% improvement

Calculated according to IEA statistics

Primary energy supply per GDP unit of each country（2009）

（Index : Japan=1.0）

1.0 1.9 1.7 2.4 3.0 3.0

5.9 7.5 7.8 7.2 7.7

16.3

3.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Japan’s Energy Conservation Efforts after the Oil Crises

62


“Energy Conservation Law” was introduced in 1979 .

The Law covers energy consumption in industry, commercial & residential and transportation sectors.

The Law specifies 1) the framework which requires the business operators to annually measure and report

their energy consumption to the Government, 2) energy efficiency standards for buildings and houses, and 3) the “Top Runner program” which is applied to household appliances, equipment and

automobiles.

Industry sector Consumer sector Transportation sector

Commercial sector Residential sector

Regulatory

measures

Annual reports to the Government by business operators with 1,500 or more kl/yr energy consumption

15,000 manufacturing plants & offices

Reduction efforts of 1% per year

Energy efficiency standards for buildings and houses (300m2 or more)

Top runner standards for household appliances , equipment, automobiles etc., 28 items in total (Account for about 70% of household energy consumption)

Periodic reports by freight carriers and consigners

Reduction efforts of 1% per year

Energy Conservation Law

63


○Obligation to report periodically

① Transition of energy unit consumption

② Status of activities relating to energy conserving measures

③ Obligation to annually report on status of benchmark indices (for subject business lines only), etc.

(Flow of measure implementation)

Business operator

Submission of periodic reports.

Implementation of onsite investigations.

Ministry of E

conomy,

Trade and Industry

Rationalization plan

instruction

Guidance

Onsite inspections

Evaluation of details of reports and investigations.

When activities are significantly inadequate.

When instructions are not followed.

* Fines imposed when orders are not followed.

○ Guidelines pertaining to energy conservation measures:

Stipulation of standards (guidelines) based on the Energy Conservation Law as observance items for energy management.

Energy conservation measures for business operators overall

・ Maintenance of energy management organization.

・ Allocation of persons in charge.

・ Formulation of policies for activities pertaining to energy conservation targets, etc.

Energy conservation measures at individual manufacturing plants and business establishments (Example: Air conditioning systems.)

Preparation and implementation of management standards (manuals) pertaining to the following measures:

・ Operational management (operating time, set temperature, etc.).

・ Periodical measurement and recording of temperature, humidity, etc.

・ Periodical maintenance and inspection of facilities.

On the basis of energy consumption, about 90% of the industriy sector and about 40% of the commercial sector are covered subject to regulations.

○ New numerical targets to include in addition to existing targets Benchmark indices and standards to be targeted

Currently set business lines: Iron and steel, electric power, cement, paper manufacturing, petroleum refining and chemical.

Standards to be aimed for: Levels satisfied by most superior business operators in respective industries (10 to 20%).

○ Numerical targets: Reduction of annual average by at least 1%.

Current Regulatory Scheme at Manufacturing Plants, etc.

Business operators with overall annual energy consumption (head office, manufacturing plants, branch offices, sales offices, etc.) of at least 1,500kl in crude oil equivalent are subject to regulations.

Business modes, such as franchized chains of stores, are also considered single business operators and those consuming at least 1,500kl for the whole chain are subject to regulations.

Public disclosures and issuance of

orders

Measures, such as instructions, public notices and orders (fines in case of violation against orders) implemented when energy conservation activities of a

business operator are significantly inadequate.

64


The “Top Runner Program” is a mandatory program for companies (manufacturers and importers), to fulfill the efficiency targets within 3 to 10 years, which encourages competition and innovation among the companies without increasing market prices.

Companies make efforts toward those goals, so the program has contributed to improving energy efficiency of consumer electronics and automobiles in Japan.

For instance, we had expected energy efficiency improvements of 16.0km/L for medium class gasoline passenger vehicles in fiscal year 1999, but actually, it attained 19.9km/L.

Fuel efficiency by category Set the 2010fy target standard

（1,016～1,265kg） Vehicle weight category

the target standard

(16.0km/L)

(Light class) (Medium class) (Heavy class)

（578～ 702kg）

（1,016～ 1,265kg）～～（2,266～

2,515kg） Vehicle weight category

To improve energy efficiency, setting the target beyond the current maximum level.

Achievement of the regulation

(Medium class)

Current maximum

(15.8km/L) Current

maximum (15.8km/L)

Basic mechanism of Top Runner Program (The case of gasoline passenger vehicles)

Top Runner Program

Achievement of Top Runner Program

Gasoline passenger vehicles

48.8％ (FY1995→FY2010)

Air-conditioners (Types other than direct airflow & wall-

mount)

32.3％ (FY1997→FY2007)

Electric refrigerators

43.0％ (FY2005→FY2010)

TV sets (LCD and PDP TVs)

29.6％ (FY2004→FY2008)

2010fy target fuel

efficiency （16.0km/L）

1997fy actual fuel efficiency

（12.9km/L）

2010fy actual fuel

efficiency （19.9km/L）

（1,016～1,265kg） (Medium class)

(Medium class)

65


The challenge is to keep consumer efforts focused on energy conservation.

Standard energy conservation

Energy consumption

Last year This year Next year

Peak Demand Management

Improve Energy efficiency of

houses and buildings

Promote Energy Management Systems

Power demand(kW) Power supply

Demand curve Peak hours

morning daytime night

Policy Development After the Earthquake

66


Energy Conservation Measures in Consumer Sector

(Products currently subject to the program):

28 products including passenger vehicles, air

conditioners, TVs, Luminaires and refrigerators

(Newly added products):

building insulation materials

Top Runner Program for Building Materials etc.

Items that do not consume energy themselves but contribute to higher efficiency of energy consumption in housing, buildings, or other equipment were added to the Top Runner program.

Measures on demand side

Consumers’ efforts to reduce the use of electricity from utility grids during the peak demand hours will be able to evaluat.

*For example, using storage batteries, energy management systems in buildings and households, private power generation etc.

Peak Demand Reduction

Measures on supply side

Specifically, the procedures to calculate the target of efforts under the Energy Conservation Law will be reviewed.

Partial Amendment of the Energy Conservation Law (May 2013)

67


“Energy Management System” is a product that systematically works together with other equipment and intelligently manages energy usage with sensors and ICT tools.

For efficient and effective support, the “BEMS Aggregators” provide energy management and operation services to small- and medium-sized buildings.

In future, it is expected that the “BEMS Aggregators” will provide Demand Response (DR) services, in which consumers are allowed to adjust electricity consumption taking into account fees for peak hours, point systems, and megawatt trade.

•Equipment such as smart meters, storage batteries •After-sales services like energy conservation consulting

Smaller high voltage consumers

Power company

Demand Response

service

BEMS “Aggregator”

Spread BEMS for small and medium size buildings

Develop energy management servicers - “Aggregators”

<future prospect> Develop DR services

Provide reasonably-priced BEMS and energy conservation consulting service

Promote introduction of Energy Management Systems (BEMS and HEMS)

“BEMS” means Building Energy Management Systems. “HEMS” means House Energy Management Systems.

68


Handle electricity supply-demand problem with promotion of introduction of HEMS / BEMS, high efficient air conditioners, lighting and hot-water supply.

Pursue energy efficiency of entire systems by managing entire houses and buildings.

In addition, more efficient energy management can be realized by cross-management of houses and buildings, or regional management.

GE GE

ZEH - Net zero energy house

ZEB - Net zero energy building

Smart community HEMS

BEMS GE GE

Cooperate by buying equipment such as efficient air conditioners and lighting, and controlling them with HEMS or BEMS.

Installation of energy management equipment Optimize houses and buildings

“Net zero energy” means that net annual primary energy consumption is approximately zero.

Regional or cross-regional optimization

Next step in Energy Management

69

http://kaden.watch.impress.co.jp/cda/parts/image_for_link/11605-804-7-1.html

http://kaden.watch.impress.co.jp/cda/parts/image_for_link/11605-804-7-1.html


Kitakyushu City

Toyota City

Yokohama City

Keihanna Science City

Demonstration of Smart Communities in Japan

■ Starting in FY2011, large-scale smart community demonstration projects have been proceeding in 4 regions across Japan that constitute representative examples of different concepts, with the participation of many residents, local governments, and corporations.

Yokohama City

Wide-area metropolis Introduction of an energy management system for an existing wide-area metropolis. As the sample number is high (4,000 households), demonstration using a variety of strategies is possible.

Toyota City Separated housing Automatic control of home appliances in 67 homes. Secondary cells equipped in vehicles are used to supply energy to households. Approaches to drivers for reducing a traffic jam

Keihanna Science City

Housing development Demand response demonstration based on a point system is being implemented for general households (approximately 700 households) where PV or HEMS automatic control has not been introduced.

Kitakyushu City

Designated supply area In an area where power is supplied by Nippon Steel Corporation, a pricing system is being implemented where the energy price fluctuates for 2 hours afterwards in accordance with the state of supply and demand of energy for the day, applicable to 50 business establishments and 230 households,.

70


8. New Technologies

71


Coal-Fired Thermal Power (Promotion of Low-Carbon Technologies)

○Coal-fired thermal power generation in Japan achieved the highest level of efficiency in the world through utilization of efficient technology (Super Critical / Ultra Super Critical) and operation / management know-how. Its efficiency is maintained for long periods after operation.

○If the most advanced technology in operation in Japan is applied to coal-fired thermal power generation in the US, China and India, it is estimated that CO2 emission could be reduced by about 1.5 billion tons.

Source: IEA World Energy Outlook 2011, Ecofys International Comparison of Fossil Power Efficiency and CO2 Intensity 2012

Change in efficiency across the ages

Gross thermal efficiency (%, HHV)

Efficiency degradation

Coal-fired thermal power generation in Takasago, Japan

Maintenance of efficiency by appropriate operation

Designed thermal efficiency

Coal-fired thermal power generation in developing countries

CO

2 em

issi

on (M

t-CO

2)

CO2 emission reduction by application of Japan’s best practices

Japan

2009 BP case 2009 BP

case 2009 BP case 2009 BP

case

US China India

▲361 Mt ＋▲811 Mt ＋▲292 Mt

1.47billion tons

Years in operation

72


Fuel Cells: Lower cost for Residential FC & expansion forecast

● In 2009, ahead of the rest of the world, Japan was successful in commercializing the Residential Fuel Cell(ENE-FARM). As of December 2013, operating base of 62,000 units. Cumulative goal of 5.3 million units by 2030.

● Support introduction by 2015 based on the assumption that the ENE-FARM system price drops to around ¥700,000-¥800,000 in 2016.

● PEFC (polymer electrolyte fuel cell) is the most common type in circulation in the market. The solid oxide fuel cell (SOFC), which has a high power generation efficiency, was commercialized in 2011.

Large-scale trial

Market scale (units)

Sales price (per unit)

Introduction/ expansion period

Full-fledged expansion period

Large-scale trial

Create market via support policies

Build an autonomous market

¥500,000-¥600,000

¥3.0 mn - ¥ 3.5 mn

¥8 million

¥７00,000-¥800,000

Resiential Fuel Cell expansion scenario

2005 2009

500 units

Roughly 5,000 units

2015

Begin introduction

subsidies

2020–2030

*0.7kW-1.0kW per unit (METI forecast)

End introduction

subsidies

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Vehicles powered by hydrogen fuel cells generate electricity by fuel batteries using hydrogen as fuel and being driven by an electric motor. Vehicles powered by hydrogen fuel cells are suitable for large vehicles traveling long distances while electric vehicles are suited for small vehicles traveling short distances.

The beginning of vehicles powered by hydrogen cells was GM`s prototype production in 1968. In the 1990`s, Japanese auto manufacturers such as Toyota, Nissan, and Honda also started development. Since 2002, METI has had vehicle and hydrogen filling station demonstrations.

Hydrogen is inferior to gasoline in the energy density per unit volume by one sixth. However, hydrogen is three times superior to gasoline in the energy density per unit weight and thus hydrogen becomes available for automobile energies by being compressed. Also, hydrogen can be produced from various energy sources such as fossil fuel and renewable energies.

Vehicle powered by hydrogen-fuel cells

Running Distance

Size of veh

icle

large

Long

EV domain

HV・PHV domain FCV domain

Clean diesel domain

Electricity Gasoline, light oil, CNG, LPG,

bio fuel, synfuel, etc Hydroge

n Fuel

（the phase of market introduction）

（the phase of spreading and market introduction)

（demonstration phase）

Short

Short distance and commuters

Conceptual diagram on segregated fuel use for vehicle

Battery

Motor

Hydrogen

tank

FC

stack

Fuel Cell Vehicle（FCV）

Gasoline Hydrogen（70MPa）

Comparison of energy density per unit volume

1 1/6

Comparison of energy density per unit weight

1 3 ※Estimated by JX Nikko Nisseki

Comparison of energy density

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http://photos.nissan-global.com/JP/120912-01/2108/index.html


Current technology achieves cruising distance and fuel filling time equivalent to gasoline cars.

Japan will deploy 100 commercial hydrogen power stations in three years, that mainly focus on the four large metropolitan areas, namely Tokyo, Aichi, Osaka, and Fukuoka.

Kitakyushu Smart community demonstration project

Toyota , BMW Nissan , Daimler, and

Ford Honda, GM

＜January, 2013＞

Agreement on Joint development of FCV

＜January, 2013＞ Agreement on Joint development of FCV technology

＜July, 2013＞ Agreement on Joint development of FCV technology

※Source: Toyota motor company

Joint development with foreign manufactures

５０ stations - Federal Ministry for

Transport, Building and Housing, Germany

６８ stations - California Fuel cell

partnership

４３ stations - Korean government

１００ stations - Japan’s reconstruction

strategy

Plan for hydrogen stand deployment until 2015 Supply to home electricity（V2H）

Current status on vehicle powered by hydrogen-fuel cells

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